The national economy is not merely a minefield, but a mind field as well, said Cornell economist William Schulze, the keynote speaker at the annual Agribusiness Economic Outlook Conference Dec. 14 in Kennedy Hall.
Schulze, a behavioral economist and the Kenneth L. Robinson Professor of Applied Economics and Public Policy, said that panic contributed as much to the economic meltdown as policy, and warned that the difference between a recession and a depression is fear.
"Fear is the big problem," Schulze said. "The American public made a huge mistake by driving stock prices down, selling out of panic. They were acting on their gut reactions rather than thinking. We still haven't recovered from fear."
The recent election campaigning based on fear hasn't helped, he added.
But luckily the psychological scarring inflicted by the 2008 collapse of Lehman Brothers does not appear to be permanent, Schulze said, adding that he is hopeful that restored confidence among business owners and consumers could drive an economic rally in 2011.
While the White House's Office of Management and Budget has forecast a 3.1 percent growth in the economy and 9 percent unemployment in 2011, Schulze was more optimistic, betting on at least 4 percent growth and 8 percent unemployment.
He agreed with a recent Wall Street Journal analysis, which said President Barack Obama's agreement to extend Bush-era tax cuts could act as a "stealth stimulus," injecting as much as $900 billion into the U.S. economy. He welcomed the move, saying the first federal stimulus package was not enough.
Combined with a more stable stock market and Federal Reserve Chairman Ben Bernanke's willingness to buy billions in Treasury bonds, Schulze said the plan could finally work to rebuild confidence.
"Real recovery could occur. I'm actually hopeful," Schulze added. "Two months ago if you had asked me to give this talk, I would have said we're toast. We were in serious trouble."
Schulze acknowledged that the United States may just be delaying the reckoning and is still facing an untenable deficit, but he said now is not the time to address it. He advised revisiting the nation's long-term economic health once the immediate danger has passed, possibly in two or three years.
Hosted by the Charles H. Dyson School of Applied Economics and Management, the annual Agribusiness Economic Outlook Conference attracted about 150 academics, farmers and business leaders to hear the latest fiscal forecasts.
Other talks addressed insurance markets and managing price risk, the dairy industry, grain and feed markets, produce, vineyards and labor.
Among the predictions were rising retail prices for fruits, vegetables, meats and eggs of around 3 percent, and 5 percent for dairy, due to higher costs and weak demand. In many cases, dairy farmers are feeling the pinch and will likely continue to do so, according to experts from Cornell Cooperative Extension.
Demand for corn and soybeans, on the other hand, is expected to rise. Without the supplies to match, however, the markets will likely remain volatile, according to Todd Schmit, assistant professor of applied economics and management. He suggested that attendees monitor government policy regarding biofuels, as it could have a substantial influence on prices.
Stacey Shackford is a staff writer in the College of Agriculture and Life Sciences.